Tech companies are using stack ranking to decide job layoffs

The practice of stack ranking employees might be making a comeback in Silicon Valley. Kate Rooney joins us now with the latest for today’s tech Check. Hey Kate. Hey Leslie. So after massive waves of tech layoffs, employees may have thought their jobs were a little safer. That might not be the case at this point, with new forms of stack ranking making a comeback. This is where you rank employees on a bell curve and then cut the bottom portion of those. It was made famous by the late Jack Welch, the former CEO of GE. It’s sometimes called rank and yank. Tech companies have been bringing it back in different forms as a means to keep headcount in check during these New Years of efficiency and heading into earnings discipline and cost. Discipline is really a big theme and what investors want to see across tech. So names like Amazon Alphabet, Meta have all cut double digit percentages of their workforce after over hiring during the pandemic. They all use some sort of employee rating system, The information also reporting that Shopify is now using a numeric rating system. Then only those whose scores increase in a review period are eligible for raises, according to the report, Which Shopify executives are pushing back on. The return of what some see as a more cutthroat internal rating system does signal a shift though in tech company culture. So back in the pandemic, they over hired and they were fiercely competing for talent. And then in the end of 0 interest rate, that really changed the hiring landscape dramatically. Companies started laying off thousands of workers. You can see in that chart there the layoffs really peaking early last year. Tech companies now need to prove that efficiency and they’ve been awarded for some of the cost discipline layoffs. Not just big tech though. You got Coinbase, Square, PayPal, all of those companies have gone through sort of the same structure of layoffs and you’ve seen it reflected in the stock price. There used to be I, I, I, I’m going to attribute this to Jack Welch and I may be doing so incorrectly that that there was a feeling that you called the weakest 10 or 15% of the herd every year. Is that where these tech companies seem to be going? It does seem to be that strategy, that sort of instead of going through these rounds of layoffs, it’s almost pruning of the workforce and it’s seen as in some ways a meritocracy. There are people out there that like this and say that’s the fairway to do it. You also hear about something called a PIP, a performance improvement plan. So that’s common in tech that if you hear it, I know Tyler, hopefully you’re not on a PIP right now. But it’s where it’s kind of seen as like the Grim Reaper coming. It’s, it’s the signal that you’re probably going to get laid off, but it will give you the opportunity and say, all right, here’s here’s your opportunity to go and improve your performance. But it’s seen as a negative in tech. And Leslie might this might resonate covering the banking sector. But I’ve talked to folks who say, you know, this also happens in banking. It’s Goldman Sachs, for example. If you’re not a top performer, you’re not going to get that bonus and you’re probably going to be let go. But it’s less explicit. These tech companies have implemented these new systems in ways to rate people and it’s easier to kind of prove and quantify. In finance if you’re not a top trader, it’s easy to say, OK, listen, you’re looking at the place you’re Leslie’s bringing in the most. As far as trading, Kate’s kind of underperforming, we’re going to get rid of Kate, whereas in engineering it’s a little bit more subjective and it’s a lot more team oriented. So the downside of some of this stack ranking, can it, it can often be less collaborative has been that the negative commentary around it and there’s been studies out there that prove that it’s not effective. So kind of a divisive topic. So Leslie, what do you think give Kate a 11 on a scale of 10? I think yes, 11 and a half, 11, 1/2 on a scale of 10. Thanks guys. Way to go, Kate. Thanks, Kate.